Keppel REIT Delivers Robust 1H 2025 Performance: Strong Portfolio Growth, Resilient Financials, and Strategic ESG Advancements Poised to Move Markets

Key Highlights from 1H 2025: Outperformance Driven by Strategic Asset Management and Market Growth

Keppel REIT has reported a solid set of results for the first half of 2025, spotlighting operational resilience, portfolio diversification, and proactive capital management. Investors should take note of several critical financial and operational developments that may have significant implications for share value.

Financial Performance and Growth Metrics

• Net Property Income (NPI): Up 11.8% year-on-year to S\$108.3 million, primarily driven by the acquisition and contribution of 255 George Street in Sydney and increased occupancy at 2 Blue Street, Sydney.
• Distributable Income from Operations: Slipped marginally by 1.4% to S\$95.5 million, but would have risen 5.9% if management fees were paid entirely in units rather than partly in cash.
• Distribution Per Unit (DPU): 2.72 cents for 1H 2025, representing a 2.9% decrease from the prior year, partially reflecting higher borrowing costs.
• Aggregate Leverage: Increased to 41.7% as at 30 June 2025, up from previous levels, drawing close attention to the REIT’s debt headroom and capital structure.
• Weighted Average Cost of Debt: 3.51% per annum, with 63% of borrowings on fixed rates, reflecting prudent risk management amid rising interest rates.
• Interest Coverage Ratio: 2.6x, with stress-tested scenarios showing resilience even if EBITDA drops or interest rates rise.

Shareholders should note the REIT’s disciplined capital management: no significant borrowings are maturing for the remainder of 2025, and a significant portion (84%) of borrowings are sustainability-linked or green loans, reinforcing Keppel REIT’s commitment to ESG funding channels.

Portfolio Review: Diversification and Leasing Momentum

• Portfolio Size: S\$9.4 billion spanning 13 prime commercial assets across Singapore, Australia, South Korea, and Japan.
• High Committed Occupancy: 95.9% as at 30 June 2025, with a portfolio WALE (Weighted Average Lease Expiry) of 4.8 years. Notably, the Australian portfolio boasts a WALE of 10.1 years, providing income stability.
• Rental Reversion: Strong at +12.3%, indicating robust leasing demand and positive re-leasing spreads across the portfolio.
• Leasing Updates: Ocean Financial Centre successfully backfilled over 73% of space returned by an anchor tenant with strong double-digit rent reversions; 255 George Street’s four fitted suites were fully committed within six months at rates above underwriting.
• Tenant Base: 494 tenants with the top 10 contributing 30.4% of total committed gross rent, diversified across banking, technology, government, legal, and blue-chip corporates.

Geographical and Asset Highlights

• Singapore: Continues to be the primary growth engine, accounting for 68.5% of attributable NPI. Key assets such as Ocean Financial Centre, Marina Bay Financial Centre, and One Raffles Quay enjoy occupancy rates above 96%.
• Australia: Significant contributions from Sydney and Melbourne assets, including the recent acquisition of 255 George Street and continued improvements at 2 Blue Street.
• North Asia: Assets in Seoul (T Tower) and Tokyo (KR Ginza II) maintain high occupancy, demonstrating portfolio defensiveness.

Market Review: Outlook Favors Well-Located, ESG-Ready Assets

• Singapore CBD Office: Grade A rents rose to S\$12.10 psf per month, with occupancy at 94.7%. Limited new supply until 2026/2027 supports rental growth prospects.
• Australia: Sydney and Melbourne CBDs show occupancy stabilizing above 80%, with effective rents continuing to trend upward.
• Seoul & Tokyo: Grade A office markets remain highly occupied, supporting stable income streams from these locations.

ESG Leadership and Sustainability Initiatives

• 84% of funding is sustainability-focused, and 100% of the portfolio (except for the newly completed 2 Blue Street, which is pending certification) is green-certified.
• Keppel REIT maintains top ESG ratings, including MSCI ESG “A”, GRESB “Green Star” status, and prime positions in major sustainability indices.
• Several properties are fully powered by renewable energy and are certified carbon neutral.

Balance Sheet and Capital Position

• Deposited Properties: S\$9,610 million as of 30 June 2025.
• Adjusted NAV per Unit: S\$1.21, down from S\$1.24 at end-2024. This minor decline may warrant investor attention, particularly if downward revaluations persist.

Distribution Timetable

• Distribution per Unit: 2.72 cents for 1H 2025.
• Key Dates: Ex-Date: 6 Aug 2025, Record Date: 7 Aug 2025, Payment Date: 15 Sep 2025.

Potential Share Price Sensitivities and Investor Watchpoints

• Rising Leverage: The increase in aggregate leverage to 41.7% brings the REIT closer to regulatory limits, which could impact future acquisition capacity and dividend policy should asset values decline or interest rates rise further.
• DPU Decline: The slight decrease in DPU and adjusted NAV per unit may raise questions about future income growth, especially in a higher interest rate environment.
• Resilience to Market Conditions: The REIT’s ability to sustain high occupancy, achieve positive rental reversions, and maintain strong tenant retention will be crucial to supporting future distributions and asset values.
• ESG Credentials: Continued leadership in sustainability, with a high proportion of green funding and certifications, may help attract premium tenants and investors, providing a potential uplift to valuation multiples.
• New Acquisitions: The recent acquisition of 255 George Street and expansion into Japan with KR Ginza II indicate ongoing portfolio enhancement, which could provide further upside if integration and performance targets are met.

Conclusion: Keppel REIT Poised for Sustainable Growth but Watch the Debt and Yield Trends

Keppel REIT’s 1H 2025 performance demonstrates strong operational fundamentals, a high-quality and diversified tenant base, and proactive asset and capital management. The REIT is well-positioned to capitalize on rental growth in its core markets and continues to be a leader in ESG practices. However, the increase in leverage and slight dip in distributable income and NAV per unit are points investors should monitor closely, especially against a backdrop of rising interest rates and potential market volatility. These factors, along with the successful execution of leasing and asset management strategies, could drive share price movements in the coming quarters.

Disclaimer: This article is for information purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any securities. Investors should conduct their own due diligence and consult their financial advisors before making any investment decisions. The author and publisher accept no liability for losses arising from the use of this information.

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